Navigating the Foreign Account Tax Compliance Act (FATCA) in Singapore

As a small business owner or entrepreneur, understanding global financial regulations like the Foreign Account Tax Compliance Act (FATCA) is crucial.

Implemented in Singapore since December 9, 2014, FATCA requires financial institutions to report financial account details of U.S. persons to the Inland Revenue Authority of Singapore (IRAS). This guide aims to demystify FATCA, making it more accessible to those who need to navigate its complexities.

What is FATCA?

FATCA was enacted by the U.S. government to combat tax evasion by U.S. persons holding accounts and assets in foreign countries. Under a Model 1 Intergovernmental Agreement (IGA) with the U.S., Singapore’s financial institutions must identify and report information about accounts held by U.S. taxpayers to IRAS, which then shares the information with the U.S. Internal Revenue Service (IRS).

Who Needs to Comply?

1. Financial Institutions:

• Banks, mutual funds, hedge funds, and insurance companies must identify U.S. persons and report their account details.
• Institutions must register with the IRS and agree to report annually to avoid a 30% withholding tax on certain U.S.-sourced payments.

2. Individuals:

• U.S. persons with financial accounts in Singapore are subject to reporting by their financial institutions.
• Individuals must also report their foreign financial accounts and offshore assets through filing the IRS Form 8938 if they meet the threshold requirements.

Compliance Procedures

• Registration: Financial institutions must register with the IRS to obtain a Global Intermediary Identification Number (GIIN).
• Due Diligence: Institutions must perform due diligence to identify U.S. account holders.
• Reporting: Annual reporting of identified U.S. persons’ account details to IRAS is mandatory.

FATCA vs. Common Reporting Standard (CRS)

While FATCA specifically targets U.S. persons, the Common Reporting Standard (CRS) aims to fight global tax evasion more broadly. CRS requires financial institutions to report account information related to tax residents of countries participating in the CRS agreement. Singapore adopted CRS in 2017, further expanding the scope of financial account reporting beyond just U.S. persons.

Documentation and Reporting

Financial institutions need to collect and verify tax residency certificates and other relevant documents from all account holders. They must then report this information to IRAS, which includes:

• The account holder’s name, address, and U.S. Taxpayer Identification Number (TIN).
• Account balance or value at the end of the year.
• The total amount of dividends, interest payments, and other income paid or credited to the account.

Annual FATCA Reporting Deadlines

• Deadline for Reporting: All Reporting SGFIs must submit their FATCA reports to IRAS by May 31st of the year following the calendar year in which the accounts are maintained.
• Penalties: Failure to file or late filing may result in penalties up to S$5,000.

Summary

FATCA impacts a broad spectrum of entities, from major financial institutions to individual taxpayers. For small businesses and entrepreneurs, particularly those in financial services or dealing with U.S. clients, understanding and complying with FATCA is essential to avoid penalties and ensure smooth operations. Consultation with a seasoned tax service provider is recommended to navigate the complexities of FATCA compliance effectively.

Experience the Counto advantage

Counto is the trusted provider of accounting, tax preparation and CFO services for startups and SMEs. Get accounting plans that combine bookkeeping with corporate tax filing to help you stay compliant at an affordable price. To learn more, speak to us directly on our chatbot, email us at [email protected], or contact us using this form.

Here are some articles you might find helpful:

Avoiding 5 common tax pitfalls

Tax-deductible donations

Startup tax exemptions

IRAS